Coca-Cola (KO) has one of the strongest competitive positions on the planet. It owns five of the top six soda brands in the world: Coca-Cola, Sprite, Fanta, Coke Zero, and Diet Coke. These global franchises allow it to sell over 2 billion drinks per day across its vast network that spans restaurants, fast-food chains, theme parks, convenience stores, and more.
You might be surprised to learn that Coke doesn't make most of its money from the sales of those sparkling beverages. In fact, about 60% of its revenue comes from another source entirely.
Breaking it down
Coke counted $43 billion of revenue in the most recent full fiscal year, up from $39 billion in the prior year. You can see that it's a truly global business from the breakdown of those sales, too. Coke generated $28 billion, or 65% of revenue, from outside of the United States. You'll find Coke products relatively easily in over 200 countries.
Yet the beverage titan doesn't make much from the actual sparkling drinks you might buy at a fast-food chain or sporting event. These products, which executives refer to as "finished beverages," account for just 44% of Coca-Cola's sales. The bigger proportion comes from the company's massive concentrate operations that deliver the remaining 56% of annual sales.
Syrups and concentrates
This segment of Coke's business involves the sale of concentrates and syrups that contain all the flavorings needed to make one of its drinks. Even a small container of concentrate can make over 100 servings of finished sodas once it is mixed with sparkling water at the point of sale.
There are lots of benefits to selling drinks this way. Coke doesn't need to ship the water that accounts for over 80% of a beverage's bulk, for example. It doesn't have to worry about securing that water, infusing it with carbon dioxide, or shipping the finished drinks in a way that preserves that carbonation in plastic bottles or aluminum cans.
And Coke generates much higher earnings from its concentrate sales. That's a big factor behind the company's 60% gross profit margin that's well ahead of PepsiCo's (PEP -0.62%) rate. Pepsi sells more of its beverages in a finished state on account of its bigger sales presence in grocery stores. It also has a large snacks and packaged foods business that produces weaker profitability than Coke's concentrate sales.
Looking ahead
Coke is enjoying strong operating momentum heading into 2024, with organic sales on track to rise by between 10% and 11%. Management hiked that outlook in late October after sales volumes increased by a healthy 2%. Executives also lifted their earnings forecast to call for a boost of as much as 14%.
Wall Street has been down on the stock despite those positive trends. Many investors have been gravitating toward faster-growing stocks in the tech industry, after all. But Coke is on pace for another good growth year in 2024 and another year of rising dividends. Many factors have allowed the beverage giant to remain in the industry leadership spot over the past several decades. Its efficient concentrate and syrup sales are a significant one.
